September 12, 2017 / 9:20 AM / in 9 months

Fitch Affirms Nuernberger's IFS at 'A+'; Outlook Stable

(The following statement was released by the rating agency) FRANKFURT/LONDON, September 12 (Fitch) Fitch Ratings affirmed German insurers Nuernberger Lebensversicherung AG's (NLV), Nuernberger Allgemeine Versicherung AG's (NAV) and Nuernberger Krankenversicherung AG's (NKV) Insurer Financial Strength (IFS) Ratings at 'A+'(Strong). The agency has also affirmed their holding company Nuernberger Beteiligungs-Aktiengesellschaft's Long-Term Issuer Default Rating (IDR) at 'A'. The Outlook on all ratings is Stable. KEY RATING DRIVERS The IFS Ratings of 'A+' reflect the Nuernberger group's (NG) very strong capitalisation and well-diversified earnings. The group's leading market position in German unit-linked life and disability market significantly mitigates risk exposure to sustained low investment yields. Offsetting these positive rating factors are the asset-liability duration gap in the life segment, an above-market-average exposure to equity investments and a difficult operating environment for German life insurers. Based on Fitch's Prism Factor-Based Model (FBM), the group's capital score was 'Very Strong' at end-2016 and we expect this to be maintained. Our sector credit factors for capitalisation were very strong at end-2016, and we expect the majority of factors to score very strong at end-2017. NG reported a Solvency II (SII) ratio of 262% including transitional measures at end-2016. Without transitional measures, it was 148%. Unlike some of its peers, NG's SII ratio does not benefit from a volatility adjustment. Fitch believes NLV is better-prepared than many of its competitors to service its guaranteed interest rate (GIR) payments in a persistently low interest rate environment. This is due to a high proportion of unit-linked and disability business in its books. Technical earnings from these lines mitigate shortfalls in investment earnings against GIR payments. As with many German life insurers, the average duration of assets is shorter than that of liabilities for NG's life segment. We view this as negative for the rating, since it increases exposure to interest rate changes. We believe the group's duration gap is in line with the market average, as the portion of traditional annuity products with long duration in its portfolio is lower than the market average. The group's equity exposure is higher than the average for German primary insurers. As a proportion of total investments (excluding unit-linked investments), the group's exposure to equity investments was 9.1%, significantly higher than the market average of 4.7% at end-2016, meaning that the group is more exposed to equity market volatility than peers. We do not expect its asset allocation to have changed significantly in 2017. Fitch assesses NG's financial performance as Strong, and expects profitability to remain stable in 2017. The group reported a return on equity of 8.3% and a net combined ratio of 94.5% for 2016. Fitch views NLV (life), NAV (non-life) and NKV (health) as core to the NG group, and their ratings are therefore based on a combined group assessment, under the agency's group rating methodology. RATING SENSITIVITIES An upgrade is unlikely in the short- to medium-term due to the currently challenging operating environment for German life insurers. Sustained material erosion in capital, as reflected, for example, in a below 'Strong' score in Fitch's Prism FBM capital assessment could lead to a downgrade. Weak overall profitability, as indicated for example, by a return on equity below 6% over a period of time, could also lead to a downgrade. Contact: Primary Analyst Dr Christoph Schmitt Director + 49 69 7680 76 121 Fitch Deutschland GmbH Neuer Mainzer Strasse 46-50 D-60311 Frankfurt am Main Secondary Analyst Dr Stephan Kalb Senior Director +49 69 7680 76 118 Committee Chairperson Willem Loots Senior Director +44 20 3530 1808 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: Additional information is available on Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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